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Playing the Collectibles Game Is Not an Investment Strategy

What you think you have and what you can get for it are often very different.

Sometimes it was a teenager, sometimes it was a middle-aged man, and sometimes it was even an older fellow, but it was always the same story.

He would walk into the large toy and hobby store I used to run with either a shoebox full of baseball cards, or a small sleeve containing either a single card or a handful of "valuable" selections. After a great internal debate, the person has elected to part with his precious treasure. Perhaps it was a family heirloom passed down from a previous generation or maybe it was a something from the 1980s or 1990s that the person had saved himself.

No matter the source, the person was always armed with knowledge from a collector's guide telling him the supposed price of his alleged treasure. This led the person to walk in with an expectation that would soon be crushed.

In most cases -- no matter what the guides said -- the cards being offered were worth next to nothing. Sometimes I would offer $20-$40 in store credit, and even when a person had a truly valuable card -- say, a rare Babe Ruth that the guides said was worth, $1,2000 -- I would offer at most 25% of the "book" value.

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The same was true if the collectible was models, die-cast cars, Happy Meals toys, stamps, or any of a dozen others things we sold. Supply always outweighed demand and price guides created irrational expectations of what things were worth.

Here's how collectibles workUnless you are at the very top tier of the game -- think Barry Bonds milestone home-run balls and other Hall of Fame-worthy memorabilia -- collecting is not an investment. The price guides are not stock exchanges. They don't reflect the price you will get for a card or other collectible. Instead, they represent a sort of pie-in-the-sky, best-case scenario.

As a store owner, I had to factor in a number of things when looking at any collectible. The first was my ability to sell the item once I owned it. Although I ran a very successful store with enormous foot traffic, the amount of people willing to shell out $1,200 for the aforementioned Babe Ruth card were few and far between. Even at the lower end when a person added up hundreds of cards "worth" pennies, nickels, quarters, and even dollars, I still had to factor in the odds of the card selling and the staff time to organize the cards.

For lower-value cards, I had to discount the price I paid based on the fact that your old Fred Lynn or Pete Rose card may be worth $8.50 mint, but there was a decent chance it would not sell and even if it did, a $10-or-so an hour employee would have to spend time finding it among boxes and boxes of cards for the buyer who wanted that particular card. On the higher end, I had to balance the purported value against the relatively small group of people who would shell out hundreds or even thousands for a collectible.

In most cases, we offered pennies on the dollar, which often resulted in incredulous customers yelling at me and storming out of the store due to my "insult" of their valuable collectible. In most cases -- probably after visiting a few other stores or trying an online auction site -- the person would come back and take the original offer.

Collectibles are almost always not an investmentPaper value or book value only means something until it's tested against the actual market. The problem with collectibles is that there is no market that actually sets values where a person can sell his goods and expect to collect a reasonable percentage of that value in return.

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"Collectibles, like art, or stamps or comic books do not have a measurable fundamental value," said Gus Sauter, who served as Vanguard Group's chief investment officer from 2003-2012, in The Wall Street Journal. "Certainly, they provide enjoyment to some people who love to examine them. But the only way to make money investing in collectibles is to find someone who is willing to pay more for them than you did."

If you're a true expert, that may be possible. There are people who scour yard sales and websites for hidden treasures that can then be sold on online auction sites. It's possible, but it's a bar the average collector or person selling off a deceased relative's collection almost never meets.

Another common "investment" strategy I often saw in my toy store days was people chasing trends. These collectors, who were generally not passionate fans of what they bought, tended to take the biggest bath when selling.

"Chasing a hot trend in collectibles is generally not a good idea," said CFA Tom Brakke, a consultant, writer, and investment advisor, in The Wall Street Journal. "As with developments in the financial markets, it's possible that a trend will persist and that you'll make some money, but selling at the right time is a real trick. Plus, it's not like buying something on a stock exchange: There are big spreads between the 'bid' and the 'ask.' Unless you are a dealer in the collectible, you'll tend to pay the retail price when you buy and get the wholesale price when you sell, and there can be a big difference between the two."

Here's why stocks are betterAll stocks have a certain level of risk and some volatility, but if you're trading on a major exchange, the listed value -- in this case, the stock price -- will almost certainly be within the ballpark of what you will actually receive for your share when you sell it. Stocks can go up and down in value, but the price is set by a market full of buyers and sellers. The price isn't theoretical and dependent upon finding the right person; it's a real value with buyers ready, able, and willing to purchase your shares during market hours.

The value of collectibles should come from the fun of collecting. If owning the baseball card of every Boston Red Sox shortstop brings you joy, then it's worth your time and money. But any return on investment should you someday sell is a secondary proposition.

Don't get into the collectibles game in order to make money. It's almost always a losing proposition where what you think you have rarely matches up with what you can get for the item.

Daniel Kline has no position in any stocks mentioned. He does not miss the people who were shocked that their Barry Bonds card was worthless, but he misses most of his hobby shop/toy store customers. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Author

Daniel B. Kline is an accomplished writer and editor who has worked for Microsoft on its Finance app and The Boston Globe, where he wrote for the paper and ran the Boston.com business desk. His latest book, "Worst Ideas Ever," (Skyhorse) can be purchased at bookstores everywhere.
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